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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2001

Commission file number 1-11512

SATCON TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)

(617) 661-0540
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act

Title of Class
Common Stock, $.01 Par Value

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

    The aggregate market value of the Registrant's Common Stock, $.01 par value per share, held by non-affiliates of the Registrant was $84,587,222 based on the last reported sale price of the Registrant's Common Stock on the Nasdaq National Market as of the close of business on October 25, 2001 ($7.19). There were 16,539,597 shares of Common Stock outstanding as of December 19, 2001.

    DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

PART I

Item 1. BUSINESS

Overview

    SatCon was organized as a Massachusetts corporation in 1985 and reincorporated as a Delaware corporation in 1992. SatCon's strategic goal is to leverage its expertise in power electronics, software and controls to establish SatCon as a leading provider of technology, power electronics products and power systems to support the emerging global need for "digital" power. Digital power is the fast growing, high-quality, high-reliability, environmentally clean electrical power required by today's digital economy. Digital power uses new silicon powerchips and control networks in the switching, control, storage and generation of electricity. It is used in automobiles, wireless telecommunications, hospitals, factory floors, routers, data centers and even in our living rooms. Digital power is electricity the way we need it today and the way it will be generated tomorrow. It is digital, distributed, clean, reliable and smart electricity. Products for the digital power market have been made possible by faster and more powerful digital power chips—the semiconductors that drive everything from high-speed computers and communications to industrial automation to new distributed power generation systems. At SatCon, we have been working on these power systems and their component groups since our inception. Today we offer a variety of digital power products from power electronics and control components to complete power systems that meet the needs of digital power markets.

    Since our inception, we have been pursuing a dual approach for growth in these digital power markets. The first strategy is to develop technology that meets a market demand and then transition that technology into commercial products. The second strategy is to expand our manufacturing capabilities and product base through acquisitions.

    Prior to 1993, we were primarily funded through research and development contracts with the U.S. government. These contracts were directed at developing new technologies in motion control, control software and electronics. Through this work, we built an engineering base in magnetics, motor/drive technology, digital signal processing and high-speed electronics. From 1993 to 1996, we expanded that base through commercially-funded research and development to include high-power electronics, high-density packaging and advanced materials. Together, these engineering skills formed the foundation for our power and energy management technology. Since 1996, we have concentrated on employing that technology to solving market needs and transitioning from technology development to product development and manufacturing.

    Beginning in 1996 we introduced our first two commercial products, the "Inertial Battery 20C1000" and the "Century 1 ISAM", which were transitioning from the laboratory to the marketplace. The "Inertial Battery 20C1000" evolved into the 2kWh (kilowatt hour) flywheel energy storage device upon which we spun out our affiliate, Beacon Power Corporation. In November 2000, Beacon Power became a publicly traded company. In September 2001 we made a 5,000,000 share distribution of our Beacon Power ownership to our stockholders and currently own approximately 11% of Beacon Power following that distribution. Our second product, the "Century 1 ISAM," or integrated suspension and motor system, now called MagLev™, is used in Applied Materials' rapid thermal processing equipment, and represents a significant source of product revenue for our Power Systems business unit which manufactures the MagLev™ under the MagMotor brand name.

    Since 1996, we have continued to transition our technology into new products that are sold commercially, including our RF, or radio frequency, satellite uplinks, aluminum nitride power resistors for cellular telephones, high efficiency motors for industrial automation, StarSine power electronics and amplifiers and Ling brand vibration test equipment. Since 1996, our revenue has increased from $9.4 million, primarily from funded research and development, to $41.7 million in 2001, of which $30.8 million, or 74%, was derived from product sales. We are also introducing new products, which we

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expect to transition into commercial production over the next few years, products such as our PowerGate™ and MegaVerter™ power conversion systems, GridLink™ utility grid interface, and our 250 kilowatt and 2.0 megawatt StarSine™ MegaPower™ UPS (uninterruptible power supply), which was introduced in January 2001.

    Since 1996, we have expanded our business and capabilities through several acquisitions. In January 1997, we acquired K&D MagMotor Corp., a manufacturer of custom and standard, high performance, electric motors. In April 1997, we acquired Film Microelectronics, Inc., a manufacturer of thin film substrates and hybrid microelectronics. In January 1999, we acquired Inductive Components, Inc., a value-added supplier of customized electric motors, and Lighthouse Software, Inc., a supplier of control software for machine tools. We acquired HyComp, Inc., a manufacturer of hybrid microelectronics, in April 1999, followed by Ling Electronics, Inc., a manufacturer of shaker vibration test systems, power converters, amplifiers and controllers, which we acquired in October 1999. In November 1999, we acquired intellectual property, tooling and other assets from Northrop Grumman Corporation, enabling us to manufacture and sell electric drivetrains. In July 2001, we acquired substantially all of the assets of Inverpower Controls Ltd., a manufacturer of power electronics and high-speed digital controls for use in industrial power and power quality systems. Inverpower also has UL and CE certification capability.

    These acquisitions have provided us with increased revenues, a manufacturing capability to transition our technology into commercial products, and a market presence from which we can derive the need for new products based on our technology. Since 1996, we have sought to expand our markets in power and energy management to include UPS and power quality, distributed power generation, wireless telecommunications, industrial automation, semiconductor manufacturing, aircraft, satellites, electric and hybrid-electric vehicles. The acquisition of Inverpower provided us with immediate product offerings in higher range UPS and power quality products including new customers such as Siemens Westinghouse.

    In fiscal year 2001, we organized SatCon into three business units: SatCon Power Systems, SatCon Semiconductor Products, and SatCon Applied Technology. We combined MagMotor, Ling Electronics and Inverpower into the Power Systems business unit. We combined our FMI and HyComp divisions into the Semiconductor Products business unit. We combined our Technology Center in Cambridge and Electronic Power Products in Baltimore into the Applied Technology business unit.

    We are focusing our development and manufacturing efforts on power and energy management products with high-growth potential in the following categories:

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    We have specialized engineering expertise in the areas of power electronics, electromechanics, mechanical and thermal dynamics, power system controls and microelectronic and semiconductor design. We have leveraged research and development funding from industry and government sources to design, develop and manufacture electronics for power conversion, amplification and storage, high-performance electric motors, electric drivetrains, flywheel energy storage systems and system controls software. We continue to pursue industry and government funding to supplement the on-going development of our products.

Industry Background

    Digital power is the high-quality, high-reliability electrical power required by today's digital technology. It is the use of new silicon powerchips and control networks in the switching, control, storage and generation of electricity. It is used in automobiles, wireless base stations, routers, factory floors and data centers. It is electricity the way we are using it today and the way it will be generated tomorrow. It is digital, distributed and smart electricity. Products for the digital power market have been made possible by faster and more powerful digital power chips—the semiconductors that drive everything from high-speed computers and communications to industrial automation to new distributed power generation systems.

    The digital power markets are entering a period of rapid expansion, as products in distributed power generation and power quality industries, hybrid-electric vehicles and RF telecommunications have approached or realized commercialization and mass production. In the United States, this expansion is being driven by several factors, including:

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Increasing demand for electricity, driven by the proliferation of computers and electronics technology. The demand for electricity has increased rapidly in recent years due in large part to the use of personal and desktop computers, computer based manufacturing equipment, the Internet, e-commerce and telecommunications products. According to the Energy Information Administration, or EIA, over the past two decades, the percentage of energy provided by electricity to U.S. housing units increased from 23% of all energy consumed in 1978 to 35% in 1997. In a 1999 report, Greening Earth Society science advisor Mark Mills estimated that the share of all U.S. electricity currently consumed by computer-based microprocessors was 13% and that within two decades, 30% to 50% of the nation's electric supply may be required to meet the direct and indirect needs of the Internet. This growth continues a long-term trend toward electrification of energy use throughout the developed world.



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Growing demand for high-quality power, as more mission-critical and sensitive electronics are connected to the electric utility grid. The growing importance of, and the proliferation of, electronics and computer networks that are power-quality sensitive has heightened the awareness of the importance of the quality and reliability of electricity. Power-quality problems such as power outages, voltage instability and low voltage in the power delivery network are significant problems for modern computers and telecommunications equipment. As the digital power based economy grows, avoiding downtime and damaged equipment due to power-related problems will become increasingly important. For example, the Department of Energy Plan for Distributed Energy Resources cites the average cost of downtime to a stock brokerage operation to be $6.5 million per hour. According to the Electric Power Research Institute, or EPRI, power disruptions cost the economy approximately $30 billion each year.



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Capacity constraints on the electric utility grid that have resulted in decreased reliability in certain power markets. Historically, the growth in the demand for electricity has met the expansion of the existing infrastructure, including additional investments in centralized generating plants, high-voltage transmission lines and distribution wires. Reliance upon this infrastructure has been and continues to be problematic for a number of reasons. First, according to the Department of

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Energy, capacity reserve margins have shown a declining trend since 1982, indicating the increased potential for power outages during peak periods. Second, in recent years, some areas of the country have experienced capacity constraints and weather-related outages due to the nature of the existing transmission and distribution system. Finally, there is difficulty in finding suitable locations for additional generating plants and transmission towers, due to environmental concerns and local zoning laws. Again, the DOE Plan for Distributed Energy Resources estimates that "domestically the demand for electricity is projected to increase more than one trillion kilo-watts over the next twenty years" and that "worldwide demand for electricity is expected to double" in the same period.

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Heightening environmental concerns regarding transportation vehicles and conventional power generation.  Among the most significant environmental effects of energy production and consumption is the emission of greenhouse gases, such as carbon dioxide, methane and nitrous oxide. The United States, as one of the world's largest producers and consumers of fossil fuels, is responsible for a major portion of the global energy-related emissions. Utilities, due to their reliance on coal-burning power plants, and automobiles are two of the largest sources of air pollution. Environmental concerns, such as those that prompted the Kyoto Protocol, are emphasizing the need to find cleaner forms of transportation and power generation.

    As a result of these market dynamics, power generation uncertainty and environmental concerns, business and residential consumers are seeking more reliable, cleaner and cost-effective solutions to the breadth of their digital power needs. We believe that our UPS and power quality, distributed power generation, industrial automation, advanced wireless telecommunications and hybrid-electric vehicle products will meet these demands.

Uninterruptible Power Supplies and Power Quality

    Uninterruptible power supply, or UPS, systems maintain a predictable quality of electricity during power outages or periods of low power quality. These systems can be used to as a replacement to the grid for an unlimited time, needing only to be refueled. In addition to their primary role of providing uninterruptible power in the absence of the grid, the UPS system also works in conjunction with the grid to provide high quality power, absent of the fluctuations caused by power surges, sags and brownouts. These troublesome disturbances can also cause system malfunctions within automated industrial processes, data centers or other industries with computer driven systems.

    As a result, UPS systems are used to support the operation of computers, manufacturing facilities and communication and other electronic networks in the event of power losses. A UPS system consists of power electronics and switches combined with an energy storage device and, for long duration outages, a power generation source. These systems are connected to the utility grid and can operate both independently and in parallel with the grid. Low power quality presents problems for industries where equipment can lose synchronization and shut down during brief power disruptions. Estimates place the UPS market in excess of $5 billion. We believe large UPS systems (2 megawatts and greater), for industrial and manufacturing operations represent the most significant market potential for our UPS and power quality systems. The growth of the computer based economy and automated manufacturing is driving the demand for large UPS systems. We estimate the market potential for this size UPS systems to be approximately $500 million annually.

Distributed Power Generation

    With the deregulation of the electric utility industry, the ability to offer new forms of electrical power generation such as distributed power generation is creating new markets, products and opportunities. Distributed power, or on-site power independent of the electric utility grid, locates power-generating capability closer to the end user. The distributed generation of electrical power from

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clean diesels, microturbines, solar arrays, wind turbines or fuel cell systems is potentially an environmentally cleaner, more efficient and more reliable means of producing electricity compared to conventional generation and distribution methods. Distributed power generation systems can also alleviate congestion on highly loaded utility distribution networks and offer an alternative to power line extensions in remote regions. In response to the many power outages in 1999, the U.S. Department of Energy's Power Outage Study Team recommended the increased use of distributed power. Fuel cells, microturbines and photovoltaics are technologies that are being developed to address the distributed power generation market.

Industrial Automation

    Global competition and the need for increased throughput and decreased downtime has required companies to become more efficient in their manufacturing processes and automated systems. Touch labor is being replaced by robotics and complex mechanical systems that can perform routines precisely, efficiently and repeatedly without failure. With the introduction of computer based automation systems, processes have become smart. However, these smart processes need smart mechanical systems to perform the ever more complex routines required by today's manufacturing systems. Digital controls and software are being combined with older technologies such as motors, actuators and positioning systems to create smart manufacturing centers. These centers represent the basic foundation of industrial automation. According to National Manufacturing Week, industrial automation today represents a $150 billion market.

    Industrial automation spans the breadth of manufacturing systems and markets, from simple pick and place machines to semiconductor manufacturing equipment. These systems provide opportunities for high reliability motors and actuators, magnetic suspension systems and compact digital drives and controls. The industrial automation market also represents another opportunity for high reliability uninterruptible power supplies and power quality systems to protect the automated systems installed in today's factories. We believe that the systems that require the protection are also the basic system components that will provide the protection. Factories using complex motors, computers and software controls will need UPS systems that are built with complex motors, computers and controls, providing suppliers of these systems with multiple revenue opportunities.

Wireless Telecommunications

    Wireless telecommunications is a fast-growing market that spans applications from personal cellular telephones to high-speed satellite uplinks. The National Telecommunications and Information Administration of the Department of Commerce estimates the telecommunications industry at $300 billion per year. According to a Galluadet University report, industry trends indicate steady progress "toward the goal of being able to communicate anywhere, anytime, and in any mode—voice, data, image, or video. Although there are daunting challenges associated with operations in the technically hostile mobile environment, it appears (1) that these capabilities will eventually include multimedia and even broadband capabilities as well and (2) that radio communications devices will increasingly be embedded in all types of equipment, just as computer chips have become pervasive today."

    Today wireless telecommunications includes not only cellular mobile radio but high-speed uplinks for secure military communications, wireless LANs, data links, a substitute for building wiring, personal communications, remote control of lighting and other functions. According to the IGI Group Wireless Telecommunications Newsletter website, "The FCC is considering opening new regions of the spectrum or shifting users to new frequency bands. New technology, such as digital and spread spectrum will allow users to co-exist in existing bands allowing greater frequency efficiency." We believe these trends will provide significant market opportunities in high-speed, high-reliability RF (radio frequency) uplinks, embedded microcircuits, amplifiers, and other semiconductor products.

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Hybrid-Electric Vehicles

    Prices of oil and refined products will strongly influence the demand for hybrid-electric vehicles. We believe high prices, if sustained, will increase demand for substitute fuel sources and may result in regulatory incentives to develop and commercialize vehicles powered by alternative fuel sources. In addition, automobiles are a major contributor to air pollution, and we believe that new hybrid-electric vehicles can help to solve this problem. The Clean Air Act Amendments of 1990 and the National Energy Policy Act of 1992 have caused automobile manufacturers to concentrate on the development of low-emission vehicles and zero-emission vehicles such as hybrid-electric or electric vehicles. The California Air Resource Board also has adopted regulations that require 10% of a manufacturer's new car sales in California be zero-emission vehicles by 2003.

    Hybrid-electric vehicles can reduce air pollution while offering greater driving range and performance than electric vehicles. Hybrid-electric vehicles function by creating energy from a source, such as an internal combustion engine or fuel cell. The mechanical energy is then transformed into electricity by a generator and transferred to an electric drivetrain that propels the vehicle. All hybrid-electric vehicles require complex power and control electronics to convert, condition and manage electricity, as well as high-performance motors, electric drivetrains and energy storage systems.

Our Opportunity

    The increased demand for reliable, high-quality, cleaner power has created a growing market for high performance power electronics, power quality systems and distributed power generation. All of these systems require power and energy management products to convert, store and manage electricity. In order to be commercially viable and operate effectively, these power and energy management products must be highly reliable, efficient, low-cost and compact. Many of these products must be highly customized to meet the evolving needs of the distributed power generation and power quality marketplace. We believe that a significant opportunity exists to manufacture and supply power and energy management products that meet these criteria.

    We believe that the ideal system to produce this digital power is one that is highly distributed with power generation, energy storage, and control systems located near the user load, with capabilities for overall management, reconfiguration and system optimization. This evolving system will use a new generation of power semiconductors, software and machine-based control systems to seamlessly combine power from the traditional utility grid with power generated on-site from sources such as natural gas engines, fuel cells and micro turbines and from energy storage devices such as flywheels and advanced batteries. We believe that the control systems that manage the flow of electrical power, which includes electronics, software and system controls, are the key enablers to the successful commercialization of this technology. Our strategy is to use our expertise and proprietary technologies in this area to leverage us into a position of leadership as a global provider of digital power systems.

Our Solution

    Our solution is to provide critical power products and systems necessary to meet the growing demands of the digital power marketplace, including high performance power electronics, power quality products and distributed power generation systems. Our products and systems include our StarSine MegaPower UPS™; PowerGate™ and MegaVerter™ power electronics; our control software; our GridLink™ utility interface; high-performance motors; and high-speed telecommunications electronics. We believe our solution encompasses the following key attributes demanded by the emerging digital power marketplace:

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Performance. At a minimum, UPS, power quality and distributed power generation systems must provide the same degree of quality power that is provided by the traditional electric utility system that supplies electric power for commercial, industrial and residential usage. Our

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products use proprietary designs to ensure that high-quality power is produced during peak as well as steady-state operations.

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Reliability. We design our products to support the long-life, always-on requirements of the digital power marketplace. We have experience designing and manufacturing high-reliability, long-life electronics for applications such as aircraft navigation systems and satellite uplink electronics. We design, manufacture and test our electronics to last at least fifteen years.



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Efficiency. The overall efficiency of a UPS or distributed power generation system, as well as high performance motors and an RF device is its ability to deliver power with minimum energy loss. Efficiency is vital to effective commercialization and depends on the efficiency of all of the component parts. We apply our electronics expertise to design and manufacture our products to meet the efficiency needs of our customers, as defined by their specifications and the end use of the product.



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Low-Cost. The widespread commercial acceptance of our distributed and digital power systems is dependent upon the reduction in cost of key components. We design our products to be low-cost by making them as compact and as easy to manufacture as possible. We have installed equipment for a semi-automated production line in our Marlborough, Massachusetts facility that will further automate the manufacturing process for power electronics components, thereby reducing the cost of these systems. We have also made acquisitions of established manufacturing facilities, such as Ling Electronics and Inverpower, to ensure manufacturability in our designs as well as manufacturing capacity to ensure low-cost.



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High Power Density. High power density, or the ability to convert, condition and manage large amounts of energy within a compact design, is required for cost reduction and is critical in applications such as automobiles and wireless telecommunications where weight and space requirements are stringent. We design our products to meet the market and our customer's demands for high power density.



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Flexibility. Due to the rapidly evolving nature of the digital power marketplace, UPS, power quality, and distributed industries, our engineers work closely with our customers to address overall systems design issues as well as to ensure that our products meet their system specifications. We develop and manufacture our products for use in various power quality and distributed power generation systems such as cogeneration systems, UPS systems fuel cells, and microturbines that are modular and scalable to meet a wide range of power requirements.

Strategy

    Our objective is to be a leading provider of power and energy management products necessary for digital power systems, power quality and UPS systems, and distributed power generation systems, including cogeneration systems, natural gas engines, fuel cells and microturbines. Our strategy to leverage ourselves into this leadership position is two-fold. First, since the power control system is the key enabler for these digital power products, we are in a position to be a key supplier to several competing power generation manufacturers, such as fuel cells, microturbines, flywheels and advanced battery systems. In addition, possessing the enabling technology in power electronics, magnetics and software controls, positions SatCon to be a strong competitor and integrator of power systems. Developing innovative power systems based on our power electronics and control software and the integration of third party "best of breed" power generation and energy storage is a key strategy. Second, most of the markets that SatCon is addressing today, while important, are niche opportunities below the radar screens of larger companies. However, many of these market opportunities have substantial growth potential. If we carefully choose, we can both grow and become firmly established in these markets in the early stages. The early adopters of digital power include semiconductor fabrication, industrial automation, financial institutions, transportation systems, communication systems

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and the military. We have already established supplier relationships with many of these early adopters and have substantial sales and backlog within these markets. We believe that by designing and developing our products across multiple markets and multiple applications, our success should be less dependent upon the adoption of a specific application or on the business of a single market participant. To accomplish our objective, we are pursuing the following key strategies:

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Design and develop innovative power and energy management products. We are developing proprietary products that are integral components in UPS, power quality and distributed power generation systems such as our PowerGate™ converter, GridLink™ utility interface and MegaVerter™ power electronics and StarSine™ MegaPower™ UPS. We believe that we have a competitive advantage resulting from our engineering expertise in the areas of power electronics, electromagnetics, mechanical and thermal dynamics, system controls and microelectronic design that we have been working on since 1985. We have leveraged research and development funding from government and industry sources to build a technology base within these areas that has resulted in 75 U.S. patents and 13 patent applications pending with the U.S. Patent and Trademark Office. In addition, 38 other patents have been issued to our employees and assigned to DaimlerChrysler in connection with the completed Chrysler Patriot racecar project.



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Establish our products as industry standards. We seek to establish our digital power products as industry standards and become a major supplier to the UPS and power quality, distributed power generation, hybrid-electric vehicle, wireless telecommunication and industrial automation markets by working with our customers to determine cost and performance requirements as we design and build our products to meet those requirements. Since we are establishing these requirements early in the product life cycle while we are one of the few suppliers, we hope that our products will set the industry standard. We believe that our engineering expertise and experience in manufacturing highly reliable products is positioning us to establish standards for our distributed power generation and power quality products.



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Install low-cost, high-volume manufacturing capabilities. We seek to establish low-cost, high-volume manufacturing capabilities to give us a competitive advantage in our markets. We are developing semi-automated manufacturing processes and expanding our manufacturing capacity in order to reduce costs as production volumes increase. In addition to installing low-cost, high-volume manufacturing capacity at existing facilities, we will continue to pursue our strategy of enhancing our manufacturing capabilities through successful acquisitions.



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Acquire new products, manufacturing capabilities and technologies. We believe that the acquisition of new products, manufacturing capabilities and technologies will enhance our competitive position and growth opportunities. Historically, the acquisition of products or companies has been a key element of our business strategy. The acquisition of MagMotor provided us with revenue in the industrial automation market, a manufacturing capability with which to build our new MagLev™ systems for Applied Materials and opportunities for expansion of MagMotor's product line into new markets and with new customers as we did with the machine tool market. We had similar experiences with Film Microelectronics and Ling Electronics, and most recently with Inverpower Controls. Inverpower and Ling brought SatCon critical technology, products and capacity to SatCon that has enabled us to offer UPS and power quality products such as our StarSine™ MegaPower™ UPS and Smart Predictive Line Controllers®. We anticipate that acquisitions will continue to play a role in our strategy.

Our Operating Divisions

    We have positioned ourselves as a leader in power electronics and controls for both distributed energy and high reliability components for the aerospace, medical and industrial automation sectors. To successfully implement this strategy, we have established and maintained a high quality design

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engineering, marketing, manufacturing and service capability through both internal corporate development and acquisitions. We currently develop and market our products and services through the following three operating segments, which were established in our June 2001, reorganization:

SatCon Power Systems

    SatCon's MagMotor, Ling and Advanced Fuel Cell Power Products operations were grouped together with the Inverpower acquisition to form SatCon Power Systems.

    SatCon Power Systems manufactures and sells SatCon's line of commercial StarSine™ MegaPower™ UPS Systems for back-up power and power quality; MegaVerter and PowerGate™100 power conversion systems for distributed power generation; StarSine™ amplifiers; MagLev™ integrated suspension and motor systems; Inverpower's industrial and commercial power conversion and conditioning products; MagMotor high-performance motors for the industrial machinery, factory automation and automotive markets; and Ling Electronics shaker vibration test systems and amplifiers.

SatCon Semiconductor Products

    SatCon's Film Microelectronics, Inc. and HyComp operations were combined to form SatCon Semiconductor Products in Marlborough, Massachusetts.

    SatCon Semiconductor Products manufactures and sells power chip components; power switches; RF devices, including SatCon's satellite uplink amplifiers; aluminum nitride power resistors for telecommunications; and standard and custom hybrid microcircuits for commercial and government aerospace, industrial, medical and automotive markets. SatCon Semiconductor Products also manufactures various multi-chip modules and the power switches for the power electronics products sold through the Power Systems business unit.

SatCon Applied Technology

    SatCon's Technology Center in Cambridge, Massachusetts and its Electronic Power Products operations in Maryland were grouped together to form SatCon Applied Technology.

    SatCon Applied Technology develops advanced technologies in digital power electronics, motors and controls, and seeks to transition those technologies into products to be manufactured and sold through SatCon's manufacturing divisions. It will also continue to pursue revenue producing development contracts from both government and commercial sources. Emphasis will be placed on contracts that lead to products that can be manufactured and sold by SatCon's two manufacturing business units.

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Products

    We design, develop and manufacture high-efficiency, high-reliability and long-lived power and energy management products that convert, store and manage electricity. We are using our electronics and manufacturing expertise to develop products that meet the high-reliability, high-efficiency, low-cost and compact-size requirements of the digital power marketplace. The following chart details the basic elements of digital power systems.

    Our digital power products are sold through our business units in the following segments:

SatCon Power Systems

    The Power Systems business unit includes high-performance motors, magnetic levitation systems, vibration test equipment, industrial automation and machine tool motors, AC and DC power supplies, static transfer switches and voltage regulators and a Smart Predictive Line Controller. These products are used in several markets and applications including, but not limited to, UPS and power quality systems, for distributed power generation, industrial automation and hybrid electric vehicles. Revenue for our fiscal years ended September 30, 2001, 2000 and 1999 from our Power Systems business unit was approximately $20.2 million, $14.1 million and $2.8 million, respectively.

UPS and Power Quality

    Currently, when electrical power is lost or its quality drops, lead-acid batteries provide back-up electricity until a generator can be engaged. Batteries have poor reliability and reduced life expectancy. The dangers of explosion and acid spills are additional environmental concerns associated with lead-acid batteries. Our StarSine™ MegaPower™ UPS product combines a diesel generator with a flywheel energy storage system, our StarSine electronics and a proprietary control system into an uninterruptible power supply (UPS) which we believe is an attractive alternative to lead-acid battery based UPS systems due to increased reliability, longer life and the ability to operate effectively in remote locations. An electric motor spins a flywheel to its operating speed. While the flywheel spins, it stores kinetic energy, or energy created by motion. During power outages or periods of low power quality, the flywheel motor converts to a generator and, like a battery, transfers the stored electricity to the end user. While the flywheel maintains the power to the end user, the diesel generator turns on and replaces the flywheel and the grid as the prime power source until the utility grid is restored. SatCon's StarSine® MegaPower™ systems can provide both power quality and UPS functions in power ranges from 250 kilowatts to 2.0 megawatts and beyond.

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Distributed Power Generation

    We have developed a PowerGate™ residential fuel cell power conversion system that combines DC to DC converters, a DC to AC inverter and a controller with control software. We have also developed our GridLink™ utility interface which is designed to allow distributed power generation systems such as fuel cells, microturbines, UPS systems and others to operate in either grid-parallel (connected to the grid) or grid-independent (disconnected from the grid) modes. Our products have been developed for use in both residential and larger industrial fuel cell power generation systems. Several fuel cell manufacturers are evaluating our PowerGate™ power electronics and control software for use in their residential fuel cell power generation systems.

    We have also developed a technology to make modular inverter units that can be combined and scaled to handle high-power requirements. Using this technology, we developed the MegaVerter™ for use in connection with large, commercial sized, fuel cell or microturbine power generation systems that produce power ranging from 200 kilowatts to 5 megawatts. We recently delivered a 250 kilowatt system to Siemens Westinghouse for use in a solid oxide fuel cell system and have supplied FuelCell Energy with a demonstration unit for a molten carbonate fuel cell to power their Danbury, CT facility.

Industrial Automation

    We design and manufacture a variety of standard and custom high-performance motors to suit specific applications. Our specialty motors are typically designed and manufactured for unique customer requirements such as high power-to-size requirements or high efficiency. We believe that our technical and design expertise enables us to shorten the time between receiving customer specifications and designing and building motors that meet these specifications. Some of our products include:

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Magnetic Levitation Systems. We manufacture magnetic levitation, or MagLev™, systems that enable machinery to rotate or move without contacting other machine parts. Our MagLev™ systems use electro-magnetic fields to lift mechanical components without any surface contact. Sensors within the system determine the actual position of the levitated object and send signals to a high-speed digital controller, which commands electricity to activate the electro-magnets, thereby making the object move away from any surface it is about to contact. Our largest selling MagLev™ system is the integrated suspension and motor, or ISAM, system that is sold to Applied Materials, Inc. for silicon wafer manufacturing. We are currently developing new applications for our MagLev™ technology in other manufacturing applications.



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High Performance Motors. We manufacture brush and brushless motors for the industrial automation and machine tool market. These small, high-efficiency motors are available with a variety of options including optical encoders, tachometers, brakes, custom cables and connectors. Our industrial automation motors are typically used in semiconductor equipment manufacturing, medical device assembly and other automated assembly processes. We also manufacture a line of precise positioning motors for use with machine tools, such as computer numerical controlled machines. These include machining centers, lathes and milling machines.



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Vibration Test Equipment. We sell shaker vibration test systems that enable manufacturers to understand how their mechanical and electronic products will perform after exposure to vibrations. Our shaker vibration test systems are designed to replicate vibrations ranging from continuous shaking to high impact forces such as those arising from dropping a product on the floor or landing a plane. Our shaker vibration test systems are used for testing a variety of products, including small electronic components, computer hardware, consumer electronics, automobiles and aerospace and satellite structures.

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SatCon Semiconductor Products

    The semiconductor products business unit includes RF or radio frequency components, hybrid microcircuits, thin film substrates and amplifiers. Revenue for our fiscal years ended September 30, 2001, 2000 and 1999 from our Semiconductor Products business unit was approximately $10.6 million, $8.3 million and $6.3 million, respectively. The following are descriptions of our product categories within the Semiconductor Products segment.

    RF or Radio Frequency.  RF components including amplifiers that are currently used in satellite uplink systems such as the Mobil SpeedPass, satellite television, wireless Internet service and secure commercial and military communications. In September 2001 we introduced a new line of high-power aluminum nitride RF (radio frequency) termination products. Capitalizing on our aluminum nitride processing, RF design and high volume assembly capabilities, the devices will be available in a variety of form factors and, we believe, will take power terminations to a new level of sophistication and versatility. Our in house RF designers can also tailor the devices to accommodate specific frequencies and applications. We manufacture a variety of RF products for secure military communications and satellite uplink electronics.

    Aluminum Nitride Power Resistors.  We manufacture power resistors for cellular telephones using aluminum nitride as the thin film substrate instead of beryllium oxide. Beryllium oxide is hazardous, and its use in manufacturing is restricted in the United States and banned in Europe.

    Amplifiers.  We sell amplifiers that take an input signal and replicate it using amplified power to boost the signal. We sell amplifiers for a variety of applications, including telecommunications uplinks, power amplifiers for aircraft applications and video amplifiers for cruise missiles.

    Hybrid Microcircuits.  We manufacture standard and custom hybrid microcircuits, which are a combination of several electronic components imbedded in a miniature printed circuit board. Due to their size, versatility and high reliability, these hybrid microcircuits are used in a broad spectrum of applications including communications, industrial, medical, military and aerospace. Our customers have employed some of our microcircuit products as follows:

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Radio frequency amplifiers that are currently used in satellite uplink systems such as the Mobil SpeedPass, satellite television and wireless Internet service,



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Motor controllers, such as high reliability motor controllers for helicopter hoist systems, and



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Video amplifiers, such as those used for a cruise missile video camera system.

    Thin Film Substrates.  Thin film substrates are miniature printed circuits onto which small electronic components are mounted, such as those used in hybrid microcircuits. Our thin film products are integrated into electronic devices that require small, high-reliability components such as cellular telephones and other wireless communications devices. In addition to producing thin film substrates for other manufacturers, we use our thin film substrates in our own hybrid microcircuit products.

SatCon Applied Technology

    We perform funded research and development in connection with government programs and for third parties. We pursue funded research and development in areas where we have technical expertise and where we believe there is significant commercial application for the developed technology. Through the integration of diverse technologies, SatCon Applied Technology offers dedicated multidisciplinary teams, focused on providing effective solutions to challenging problems. Technical disciplines represented include electromechanics, digital and analog electronics, power electronics and electronic packaging, thermal control, motor dynamics, materials, software development and control technology, electro-optics and system integration. Areas of product development include distributed power

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generation, energy storage and power quality, high performance electric machinery, special purpose electric machinery, transportation systems, "all electric" ships and aircraft.

    We have performed funded research and development in connection with the development of each of our product areas. Revenue for our fiscal years ended September 30, 2001, 2000 and 1999 from funded research and development was approximately $10.9 million, $8.7 million and $6.4 million, respectively.

    We have a contract with the U.S. Department of Energy (DOE) for the research, development and demonstration of a power conversion system for a new generation of hybrid-electric vehicles. Under this government contract, we expect to design a power conversion system that can be manufactured at high volume and low cost. We believe that the resulting design will enable us to enhance our manufacturing capabilities to produce our power conversion products for hybrid-electric vehicles and distributed power generation systems. This program has been funded half by us and half by DOE. The total DOE approved budget for this program is $10.0 million through September 29, 2002. As of September 30, 2001, DOE has funded $7.5 million of this budget. Revenue for our fiscal years ended September 30, 2001, 2000 and 1999 for this program totaled $3.1, $3.4 million and $1.0 million, respectively. The additional DOE funding of $2.5 million is subject to congressional appropriation and DOE approval. Our Semiconductor Products business unit will manufacture these electronics in production quantities when they become commercialized.

    In 2001, we worked on the development of a line of high-performance motors for auxiliary uses, such as fuel pumps, in fuel cell hybrid-electric vehicles. We are also developing these high-performance motors for use in commercial and residential fuel cell power generation systems. Our Power Systems business unit will manufacture these motors in production quantities when they become commercialized. We also received $3.0 million in development revenue for high performance motors, as well as electronics and control systems, for the DD21 "all electric" ship, and, in September, delivered a power conversion and control system for a military hybrid-electric vehicle.

Significant Customers

    The U.S. Department of Defense accounted for 6.8%, 9.8% and 20.6% of our total revenue for our fiscal years ended September 30, 2001, 2000 and 1999, respectively. For our fiscal years ended September 30, 2001 and 2000, revenue from the U.S. Department of Energy accounted for 7.4% and 11.5% of our total revenue, respectively. For our fiscal years ended September 30, 2001 and 2000, revenue from Applied Materials accounted for 8.3% and 10.6% of our total revenue, respectively.

Research and Development

    We believe that the continued and timely development of new products and enhancements to our existing products are necessary to maintain our competitive position. We use technologies developed by our Applied Technology business unit and our other divisions, together with information supplied by our distributors and customers, to design and develop new products and product enhancements and to reduce the time-to-market for our products.

    $10.9 million, or 26%, of our revenue during the fiscal year ended September 30, 2001 was attributable to research and development activities funded by commercial customers and U.S. government agency sponsors. Under the agreements funded by the U.S. government, the government retains a royalty-free license to use the technology developed for government purposes and we retain exclusive rights to the technology for commercial and industrial applications. The rights to technology developed under contracts funded by commercial customers are negotiated on a case-by-case basis. We expended $6.2 million, $3.5 million and $726,000 on internally-funded research and development during our fiscal years ended September 30, 2001, 2000 and 1999, respectively. During our fiscal year ended

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September 30, 2001, our most concentrated effort was directed toward building the power inverter for an on-site power generation system and our 250kW and 2.0MW UPS and power quality systems.

Sales and Marketing

    We sell our products and services both domestically and internationally through our direct sales force and through independent distributors and representatives. Our direct sales staff manages our key customer accounts, provides customer support and identifies significant market opportunities in their respective markets.

    Each of our divisions manages its own marketing organization and is responsible for developing sales and advertising literature, such as product announcements, catalogs, brochures and magazine articles in trade and other publications. Publication of significant events or material information is handled through our corporate office.

    We maintain close contact with our customers' design and engineering staffs in order to provide the appropriate products for our customers' applications. We maintain this close working relationship with our customers throughout the life of a product, and we believe that it has been a key component of our customers' satisfaction.

    We compete for and market our research and development contracts through several methods, including pursuing new and existing customer relationships in the commercial and government sectors, responding to Small Business Innovative Research calls for proposals and calls for proposals listed in the daily publication, Commerce Business Daily, seeking to maintain a strong technical reputation within the community, responding to unsolicited requests for proposals and through our Internet site.

Backlog

    Our backlog consists primarily of research and development contracts and orders for power electronic and motion control products. At September 30, 2001, the backlog was $21.0 million for work to be performed and products to be shipped during our fiscal year ending September 30, 2002 and beyond. Many of our contracts and sales orders may be canceled at any time with limited or no penalty. In addition, contract awards may be subject to funding approval from the U.S. government and commercial entities, which involves political, budgetary and other considerations over which we have no control. Our backlog at September 30, 2000 was $23.3 million.

Competition

    The market for our products is competitive and subject to rapid technological change. The market is significantly affected by new product introductions and other market activities of industry participants. We currently or potentially compete with:

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Manufacturers of converters and inverters for fuel cells such as Trace Engineering, a division of Xantrex Technology, Inc., Asea Brown Boveri Ltd., Siemens Corporation and Alstom S.A.,



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Manufacturers of hybrid microcircuits such as Omnirel L.L.C., Aeroflex Inc., Teledyne Inc. and DDC & R, Inc.,



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Manufacturers of thin film substrates such as MIC Technology, an Aeroflex Company and Ultrasource, Inc.,



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Manufacturers of electric vehicle drivetrains such as Lockheed Martin Corp., Solectria Corporation, Delphi Automotive Systems, Corp., Siemens Corporation and Visteon Corporation,



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Manufacturers of motors such as MCG Inc., Reliance Electric CO/DE, CMC Industries, Inc. and other regional and specialty motor manufacturers, and

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Manufacturers of shaker vibration test systems such as Ling Dynamics Systems, Ltd. and Unholtz-Dickie, Corp.

    Many of our competitors have significantly greater financial resources than we do and are able to devote greater resources to the development, promotion, sale and support of their products and may have more manufacturing expertise and capacity. In addition, many of our competitors have more extensive customer bases and broader customer relationships than we do.

    We believe that competitive factors for our products include:

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Innovative design



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Performance



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Reliability



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Efficiency



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Pricing



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Functionality



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Reputation of the vendor



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Service



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Ease of use



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Flexibility



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Manufacturing capacity



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Customization capabilities

    We believe that we are positioned to compete favorably on the basis of each of these factors in each of our markets.

Manufacturing

    We manufacture our products at four facilities located in Marlborough, Massachusetts; Worcester, Massachusetts; Anaheim, California and Burlington, Ontario, Canada. We have existing manufacturing capacity to meet our current needs. Our goal is to mass manufacture high volume, low-cost products. We believe that most of the raw materials used in our products are readily available from a variety of vendors. Additionally, we design and develop our products to use commodity parts in order to simplify the manufacturing process. We have a semi-automated production line in our Marlborough, Massachusetts facility. We intend to add additional production lines for our products in the future as demand dictates. We have made and expect to continue to make technological improvements that reduce the costs to manufacture our products.

Intellectual Property

    Our success and competitiveness depend on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright law and contract restrictions to protect the proprietary aspects of our technologies. We seek to limit disclosure of our intellectual property by requiring employees, consultants, and any third parties with access to our proprietary information to execute confidentiality agreements and by restricting access to that information. These legal protections afford only limited protection for our technology.

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    We currently own 75 U.S. patents and have 13 patent applications pending with the U.S. Patent and Trademark Office. We have also obtained 88 corresponding patents in Europe and Asia. In addition, we have a non-exclusive, royalty-free license for non-automotive applications for 38 other patents that were issued to our employees and assigned to DaimlerChrysler in connection with the completed Chrysler Patriot racecar project. Our patents are distributed among the following six application areas:

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Power electronics and controls,



•

Distributed power generation and hybrid-electric vehicles,



•

Flywheels,



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Motor related applications,



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Magnetic levitation and magnetic bearings and



•

Chemical and biological detection systems.

    The expiration dates of these patents range from 2007 to 2021, with the majority expiring after 2016.

    In 1997, we granted Beacon Power a perpetual, worldwide, royalty-free, exclusive right and license to our flywheel technology for stationary, terrestrial applications. As a qualifying small business, we have retained commercial ownership rights to proprietary technology developed under various U.S. government contracts and grants, including small business innovation research contracts. Our patent and trade secret rights are of material importance to us and to our future prospects.

    Many of the U.S. patents described above are the result of retaining ownership of inventions made under U.S. government-funded research and development programs. With respect to any invention made with government assistance, the government has a nonexclusive, nontransferable, irrevocable, paid-up license to use the technology or have the technology employed for or on behalf of the U.S. government throughout the world. Under certain conditions, the U.S. government also has "march-in rights." These rights enable the U.S. government to require us to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to responsible applicants, upon terms that are reasonable under the circumstances. If we refuse, the government can grant the license itself, provided that it determines that such action is necessary because we have not achieved practical application of the invention, or to alleviate health or safety needs, or to meet requirements for public use specified by federal regulations, or because products using such inventions are not being produced substantially in the United States. The exercise of these rights by the government could create potential competitors for us if we later determine to further develop the technologies and utilize the inventions in which the government has exercised these rights.

    Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products or technologies is difficult. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such resulting litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition.

    We cannot assure you that third parties will not claim infringement with respect to our current or future products. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. A successful claim of intellectual property

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infringement against us and our failure or inability to license the infringed technology or develop or license technology with comparable functionality could have a material adverse effect on our business, results of operations and financial condition.

    We depend upon intellectual property developments that sometimes derive in whole or in part from U.S. government contracts and subcontracts. Our rights to these intellectual property developments vary by contract, depending upon such factors as whether the government wholly or only partly funded the contract, and the terms of the negotiation between the government department and us. Some contracts may give us exclusive rights to commercialize the invention, reserving to the government only those rights which it needs for government functions. Other contracts may give broader rights to the government. At the least, most of these contracts provide us with a non-exclusive, non-assignable license to use a development for commercial purposes, however most of our technology developed through government-funded contracts is protected through patents and exclusive rights.

Government Regulation

    We presently are subject to various federal, state and local laws and regulations relating to, among other things, safe working conditions, handling and disposal of hazardous and potentially hazardous substances and emissions of pollutants into the atmosphere. To date, we believe that we have obtained all necessary government permits and have been in substantial compliance with all of these applicable laws and regulations.

Government Contracts

    We act as a prime contractor or major subcontractor for many different U.S. government programs, including those that involve the development of electro-mechanical transportation, navigation and energy-related products. Over its lifetime, a program may be implemented by the award of many individual contracts and subcontracts, or contracts with option years, or partially funded contracts.

    U.S. government contracts include provisions permitting termination, in whole or in part, without prior notice, at the U.S. government's discretion. The U.S. government pays compensation for work actually done and commitments made at the time of termination, and some allowance for profit on the work performed. The U.S. government may also terminate for default in performance and pay only the value delivered to the U.S. government. It can also hold the contractor responsible for reprocurement costs.

    Our government contract business is also subject to specific procurement statutes and regulations and a variety of socio-economic and other requirements. Failure to comply with these regulations and requirements could lead to loss of contract or suspension or debarment from U.S. government contracting or subcontracting for a period of time. Examples of these statutes and regulations are those related to procurement integrity, export control, employment practices, the accuracy of records and the recording of costs.

    Sales to the U.S. government may be affected by changes in research interests in the areas in which we engage, changing government department budgets, and changing procurement policies.

Employees

    At September 30, 2001, we had a total of 364 full-time employees, 8 part-time employees and 19 contract employees. Of the total, 126 persons were employed in engineering, 185 in manufacturing, 53 in administration and 27 in sales and marketing. None of our employees are represented by a union. We believe that our relations with our employees are good.

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Beacon Power Corporation

    In May 1997, we formed Beacon Power to develop stationary, terrestrial flywheel energy storage systems for commercial applications. At that time, DQE Enterprises, Inc., who is currently one of our investors, made a $5 million investment in SatCon, and we were required to contribute the $5 million to the capital of Beacon Power to fund its development efforts. As a condition of DQE Enterprises' investment in us, we granted Beacon Power a perpetual, worldwide, royalty-free, exclusive right and license to our flywheel technology for stationary, terrestrial applications.

    Beacon Power has been developing stationary flywheel energy storage systems to offer customers an environmentally cleaner, more reliable alternative to lead-acid batteries for energy storage and power quality management. Lead-acid batteries have three primary deficiencies. Weather extremes and frequent discharging and recharging limit their reliability and useful lives, they cannot be remotely monitored currently, and they represent an environmental risk due to the threat of explosion and battery acid spills.

    Beacon Power is developing its flywheel energy storage system to operate in all weather conditions, to offer remote monitoring, to have no limitations on charge and discharge cycles and to have a longer useful life than batteries. Beacon Power's flywheel energy storage system consists of a rotating, composite rim that spins on magnetic bearings in a vacuum. The flywheel is powered up to its operational speed by an internal motor. Because of negligible friction, little power is required to maintain the flywheel's operating speed. During power outages or periods of low power quality, the flywheel motor converts to a generator and, like a battery, transfers the stored electricity to the end user.

    On October 23, 1998, Beacon Power completed a $4.8 million private placement of its class D preferred stock and warrants to Perseus Capital L.L.C., DQE Enterprises and Micro-Generation Technology Fund, L.L.C. At that time, we relinquished significant control of Beacon Power and Beacon Power came under the control of its third-party investors. From June 1999 through March 31, 2000, Beacon Power was financed through the issuance of approximately $4.7 million of bridge notes and warrants to its investors, including approximately $1.0 million from us. On April 7, 2000, Beacon Power issued 1,226,141 shares of its class E preferred stock and warrants to purchase 306,535 shares of its class E preferred stock in exchange for the conversion of all of its outstanding bridge notes of which we received 347,407 shares of Beacon Power's class E preferred stock and a warrant to purchase 86,852 shares of its class E preferred stock.

    On April 21, 2000, Beacon Power raised an additional $4.1 million through the sale of additional bridge notes and warrants to purchase 82,000 shares of Beacon Power's common stock. We did not participate in this financing. On May 23, 2000, Beacon Power issued 6,785,711 shares of its class F preferred stock and additional warrants to purchase shares of Beacon Power's common stock. The exercise price and the number of shares subject to these additional warrants were based on the initial public offering price of Beacon Power's common stock. The shares of class F preferred stock and the additional warrants were issued in consideration for the cancellation of $5.2 million in bridge notes and an additional $23.3 million cash investment by existing and new investors. We did not participate in this financing either.

    Beacon Power's class D preferred stock, class E preferred stock and class F preferred stock accrue quarterly dividends in arrears at a rate of 12.5% through May 23, 2000 and 6% thereafter. Beacon Power also has consulting arrangements with Perseus, DQE Enterprises and Micro pursuant to which Beacon Power must pay consulting fees in shares of its class A preferred stock.

    On November 22, 2000, Beacon Power completed an initial public offering of its common stock and issued 8,000,000 shares of its common stock at $6.00 per share. Upon the closing of Beacon Power's initial public offering, each share of Beacon Power's class A, C, D, E and F preferred stock

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was converted into two shares of Beacon Power's common stock or 29,359,530 shares of common stock. In addition, upon the closing of Beacon Power's initial public offering, Beacon Power issued 873,794 shares of common stock in payment for consulting fees and accrued dividends on Beacon Power's class D and E preferred stock. On December 19, 2000, Beacon Power issued an additional 1,200,000 shares of its common stock at $6.00 per share to cover over-allotments. On December 20, 2000, Beacon Power issued 985,507 shares of its common stock in connection with the cashless exercise of warrants to purchase shares of Beacon Power's common stock. On December 22, 2000, Beacon Power issued 997,369 shares of its common stock in connection with the cashless exercise of warrants to purchase shares of Beacon Power's common stock.

    On September 28, 2001 we distributed 5,000,000 shares of SatCon's ownership in Beacon Power to our stockholders. As of September 30, 2001, we continued to beneficially own 4,705,910 shares, or approximately 11%, of Beacon Power's common stock. We also own a warrant to purchase 173,704 shares of Beacon Power's common stock at an exercise price of $1.25 per share. David B. Eisenhaure, our chairman of the board, president and chief executive officer serves on the Board of Directors of Beacon Power.

Item 2. PROPERTIES

    We lease office, manufacturing and research and development space in the following locations:

    Our Cambridge, Massachusetts lease contains an additional 13,000 square feet of space, which is subleased to a third party until December 31, 2002. We also lease 15,000 square feet in North Andover, Massachusetts which were vacated in July 2001 when we consolidated operations into the Marlborough, Massachusetts facility. We are seeking a sublet tenant for the remainder of the lease term through July 2002. We also lease 17,000 square feet in Worcester, Massachusetts which has been vacated and operations relocated to the newly leased Coppage Drive Worcester, Massachusetts facility in July 2001. We are seeking a sublet tenant for January 1, 2002 through the remainder of the lease term of March 2003.

    We believe our facilities are adequate for our current needs and that adequate facilities for expansion, if required, are available. See also "Business—Our Operating Divisions."

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Item 3. LEGAL PROCEEDINGS

    Sean Moran, our Chief Financial Officer, served as Chief Financial Officer for Anika Therapeutics, Inc. from February 1993 to January 2000. Anika reported, in May 2000, that it was the subject of a formal investigation by the SEC. Anika reported that in connection with the formal investigation, the SEC required Anika to provide information in connection with certain revenue recognition matters. Anika reported that these matters related to Anika's historical accounting for sales of its product under a long-term supply and distribution agreement. In March 2000, Anika restated its financial results for 1998 and the first three quarters of 1999 to change its revenue recognition policy under this long-term supply contract. In August 2001, Anika again restated its financial results for the fourth quarter of 1998 and the first quarter of 1999.

    From time to time, we are a party to routine litigation and proceedings in the ordinary course of business. We are not aware of any current or pending litigation to which we are or may be a party that we believe could materially adversely affect our results of operations or financial condition.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    No matter was submitted to a vote of security holders during the fourth quarter of our fiscal year covered by this report through the solicitation of proxies or otherwise.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is publicly traded on the Nasdaq National Market under the symbol "SATC."

    The following table sets forth the range of high and low sales prices of our common stock as reported on the Nasdaq National Market for our fiscal years ended September 30, 2000 and 2001:

    On December 19, 2001, the last reported sale price of our common stock as reported on the Nasdaq National Market was $4.95 per share. As of December 19, 2001, there were 16,539,597 shares of our common stock outstanding held by approximately 205 holders of record.

Dividend Policy

    We have never paid dividends on our common stock. We currently intend to retain earnings, if any, to fund the development and growth of our business and do not anticipate paying cash dividends for the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.

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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

    You should read the data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data set forth below for our fiscal years ended September 30, 2001, 2000 and 1999 and the consolidated balance sheet data as of September 30, 2001 and 2000 are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of operations data for our fiscal years ended September 30, 1998 and 1997 and the consolidated balance sheet data as of September 30, 1999, 1998 and 1997 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. The statement of operations for our fiscal year ended September 30, 2001 includes the results of the acquisition of assets from Inverpower Controls Ltd. beginning from July 13, 2001, the date which we acquired assets from Inverpower Controls Ltd.